Monday, May 15, 2017

If we're to believe the individual is fundamentally selfish and can't be trusted with local economic decisions, how are government personnel automatically better? Why should we trust central planners, who, in the case of some bureaucrats, are in power for life? Epoch Times, Valentin Schmid, opinion

“Economics is in reality very simple. It functions in the same way
that it did thousands of years ago. People come together to voluntarily
engage in commerce with one another for their mutual benefit. People
specialize and divide work among themselves to advance their condition,”
writes modern Austrian economist Philipp Bagus in his book “Blind
Robbery!”

Reason Versus Force

A bedrock principle of this understanding is that exchange should
occur voluntarily and not under the coercion of the state or any other
party. If exchange is voluntary, the individual or company must offer
something of value if it wants to obtain something of value.

This premise encourages innovative, creative, and productive
behavior. It also forces individuals to think about what their fellow
humans may appreciate or need. Every decision to allocate capital and
labor needs to stand the test of reason, argument, and negotiation.

On aggregate, this decision-making process is much more elaborate and
prudent than any central planning decision, which must use force to
compel its subjects.

“Production is directed either by profit-seeking businessmen or by
the decisions of a director to whom supreme and exclusive power is
entrusted. . . . The question is: Who should be master, the consumers or
the director?” Austrian school economist Ludwig von Mises (1881-1973)
writes in his book “Human Action.”

Skin in the Game

This approach to economics can do without the complex mathematical
models of the current schools because it admits that perfection doesn’t
exist. There is no equilibrium. Things aren’t perfect, but the best
possible solution to economic problems will be found by private
individuals acting voluntarily, each assessing new situations for
themselves.

“This is precisely what the price system does under competition, and
which no other system even promises to accomplish. It enables
entrepreneurs, by watching the movement of comparatively few prices, as
an engineer watches the hands of a few dials, to adjust their activities
to those of their fellows,” Nobel laureate Friedrich von Hayek wrote in
his 1944 classic“The Road to Serfdom.”

This acceptance of imperfection, and the insight that those on the
ground are best suited to make decisions about allocating scarce
resources, avoids the false promise that central planning can solve
every problem if only the right people are in power.

The Austrian school also dispenses with the myth that individuals and
companies are inherently greedy and need a government to restrain their
avarice.

It takes a more positive view of humanity, which includes mutually
beneficial exchange as well as charity. Anybody who has ever made time
and money available to help a fellow human knows that the neoclassical
description of man as only maximizing his material welfare does not hold
true in the real world.

In fact, Austrian economists argue thatthe welfare state, which has
so far failed to deliver on its promise to completely eradicate
poverty—a promise the competitive system never makes—reduces the
individual’s incentives to give. It limits the individual’s material
resources through taxation and provides an excuse to evade philanthropy
because the government is taking care of the problem.

What holds for market pricing also holds for charity. Individuals and
communities can make charitable decisions based on their values and
local considerations, rather than a one-size-fits-all policy.

“Since the natural tendencies of mankind are so bad that it is not
safe to allow them liberty,how comes it to pass that the tendencies of
organizers are always good? Do not the legislators and their agents form
a part of the human race?” asked Frédéric Bastiat in his 1850 essay
“The Law.”

The answer, of course, is that the organizers are driven by the same
flawed, human incentives as everyone else,andthe more centralized
power becomes, the greater the potential for maximum damageif bad
decisions are made.The Chinese tyrant Mao Zedong’s decision to increase steel output to
rival that of the United States starting in the late 1950s cost an
estimated 38 million lives, because he did not know or care that the situation on the ground dictated food production for survival.

The farmers, if left to their own devices, would have known better.

If a couple of farmers had gone into steel of their own volition, they
might have suffered losses, but the rest of the population would have
been unaffected. Although this is an extreme example, the principles
behind it are applicable to bureaucracies in democratic countries.

Limited Government

If individuals, entrepreneurs, and companies have the best
information for making the best decisions, and if their mistakes cost
society less than under central planning, then naturally the state will
have to take a limited role in interfering with people’s lives. The
system would also limit the scope of corporate and government collusion
to limit competition, a malady many blame on free markets alone.

Bastiat said the only law the state should enforce is the protection
of life, liberty, and property, including a court system for the
enforcement of private contracts. He and many Austrian economists looked
favorably on the U.S. Constitution, which envisions very limited powers
for the federal government.

A competition among ideas, however, is critical for intellectual
discourse. According to another champion of the Austrian school, Ludwig
von Mises, it is ideas that determine the fate of our civilization.

“The aim of the popularization of economic studies is not to make
every man an economist. The idea is to equip the citizen for his civic
functions in community life. The conﬂict between capitalism and
totalitarianism, on the outcome of which the fate of civilization
depends,will not be decided by civil wars and revolutions,” von Mises
pronounced.“It is a war of ideas. Public opinion will determine victory
and defeat.”""Views expressed in this article are the opinions of the author(s) and do not necessarily reflect the views of Epoch Times."